As a firm expands its output, cost per unit of output average cost) decreases and then increases. Average cost and output have
A) a relationship with a maximum.
B) no relationship.
C) a relationship with a minimum.
D) a linear positive relationship.

Question

Quizplus · Accepted Answer

The relationship between average cost and output is a u-shaped curve, indicating a relationship with a minimum. As the firm expands its output, it benefits from economies of scale up to a certain point, which leads to a decrease in average cost. However, beyond this point, the firm experiences diseconomies of scale, and average cost begins to increase. Therefore, the minimum point where average cost is lowest represents the most efficient level of output for the firm.

As a Firm Expands Its Output, Cost Per Unit of Output